Industry Illusions

Triumph of the Ostriches

Throwing caution to the wind has been very profitable – so far. But if history is any guide, there are many reasons for investors to consider taking a much more cautious stance.

Here are the facts: according to every valuation metric that matters (i.e. with statistical significance through history), stocks are quite expensive.

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Predicting Markets, or Marketing Predictions

We know from studies of expert judgement that gurus who make nuanced predictions and hedge their bets attract much less attention than experts who spin dramatic predictions with unswerving confidence. As a result, firms are predisposed to encourage gurus to voice strong opinions and divergent views that stand out from the crowd.

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Track Records are Rubbish (or Why Managers are Factors in Drag)

The investment management industry knows that you are influenced by percent symbols preceded by large numbers, so they market products with the best 1, 3 and 5 year track records, prominently featuring them in newspaper and TV advertisements, knowing that you will be unable to resist the urge to chase into those funds to avoid missing another year of riches.

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Don’t Take Our Word For It

Long-time readers will know that we periodically publish a statistical forecast for U.S. stock market returns over horizons from 5 to 30 years, which we generate from a variety of long-term valuation metrics.

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About Us

ReSolve Asset Management Blog is an investment research forum, opinion pieces, and educational material from the team at ReSolve Asset Management. Our views are driven by evidence based finance, with a special focus on asset allocation, factors and smart beta, retirement and endowment strategies, and quantitative methods.

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